Introduction
Third-party relationships sit at the heart of modern enterprises. Cloud platforms, managed service providers, software vendors, data processors, and outsourcing partners enable speed, scale, and efficiency. At the same time, they represent one of the largest and least controlled sources of cyber risk. European regulators have made it clear that organisations cannot outsource accountability along with services.
Under GDPR, regulators repeatedly found that personal data breaches originated not from internal systems, but from processors and vendors. Under NIS2, this concern has expanded further. Supply chain and third-party cyber risk is now viewed as a systemic threat capable of disrupting essential services, economies, and public trust. As a result, third-party risk management has moved from contractual hygiene to active operational governance.
This article explains how GDPR and NIS2 approach third-party risk, what regulators expect EU enterprises to implement, and how organisations can manage vendor risk without over-engineering or slowing business operations.
Why Third-Party Risk Is a Regulatory Priority
Regulators across the EU have observed a consistent pattern, enterprises may have reasonable internal controls, but a single weak vendor can bypass those controls entirely. Incidents involving MSPs, cloud misconfigurations, payroll providers, marketing platforms, and software supply chains have demonstrated how quickly third-party failures propagate.
GDPR enforcement actions have shown that regulators hold controllers accountable even when gdpr data breaches occur at processors. NIS2 takes this further by recognising that supply chain cyber failures can cascade across sectors, impacting availability and resilience far beyond one organisation.
For EU enterprises, this means third-party risk is no longer a procurement or legal afterthought. It is a core cybersecurity and governance issue.
Third-Party Risk Under GDPR: Controller Accountability
GDPR establishes a clear accountability model. While processors are required to implement appropriate security measures, the data controller remains responsible for ensuring that those measures exist and operate effectively.
Key GDPR expectations include:
- Due diligence before engaging processors
- Clear data protection obligations in contracts
- Oversight of processor activities
- Breach notification coordination
- Ability to demonstrate compliance
Importantly, GDPR does not allow organisations to rely solely on contractual clauses. Regulators expect active oversight, proportionate to the risk.
What GDPR Considers a Third Party
Under GDPR, third parties typically fall into categories such as:
- Data processors
- Sub-processors
- Joint controllers
- External service providers with data access
Any entity that processes personal data on behalf of an organisation, or has access to systems containing personal data, falls within scope. This includes IT vendors, cloud providers, payroll processors, CRM platforms, and even consultants with system access.
Common GDPR Failures in Third-Party Risk
Across enforcement actions, regulators frequently observe:
- Inadequate due diligence before onboarding vendors
- Generic or outdated data processing agreements
- No visibility into sub-processors
- Lack of monitoring of vendor security posture
- Poor coordination during incidents
These failures often indicate governance weaknesses rather than technical gaps.
NIS2: Expanding Third-Party Risk to Supply Chain Security
NIS2 significantly expands expectations around third-party and supply chain risk. It explicitly recognises that cybersecurity incidents can originate outside organisational boundaries, particularly through service providers and digital dependencies.
Under NIS2, organisations must address:
- Supply chain security risks
- Dependency on single or critical vendors
- Cybersecurity posture of MSPs and IT service providers
- Resilience of outsourced services
This applies not only to traditional vendors, but also to cloud platforms, managed services, and digital infrastructure providers.
From Contractual Assurance to Operational Oversight
One of the most important shifts under GDPR and NIS2 is the move from paper-based assurance to operational governance.
Regulators increasingly expect enterprises to:
- Identify which vendors are critical
- Assess cyber risk proportionate to vendor impact
- Monitor vendors over time, not just at onboarding
- Respond quickly when vendor incidents occur
This does not mean auditing every vendor equally. It means applying risk-based differentiation.
Risk-Based Vendor Classification
Effective third-party risk management begins with classification. Enterprises should categorise vendors based on:
- Access to personal data
- Access to critical systems
- Impact on service availability
- Substitution difficulty
- Regulatory exposure
High-risk vendors require deeper oversight, while cyber low-risk management vendors may only require baseline controls. Regulators expect this tiered approach, not blanket questionnaires.
Vendor Due Diligence: What Regulators Expect
Due diligence should be proportionate and practical. Under GDPR and NIS2, regulators expect organisations to demonstrate that they:
- Assessed vendor security posture before onboarding
- Considered data protection and cyber risks
- Made informed decisions based on risk
This may include security questionnaires, certifications, policies, or third-party attestations, depending on the vendor’s risk profile.
Contractual Controls: Necessary but Not Sufficient
Contracts remain important. GDPR requires specific clauses covering:
- Security measures
- Confidentiality
- Breach notification
- Sub-processor approval
- Audit rights
However, NIS2 reinforces that contracts alone do not manage cyber risk. Enterprises must ensure contractual obligations translate into real-world practices.
Ongoing Monitoring and Oversight
Regulators increasingly expect ongoing vendor oversight, especially for critical third parties. This may include:
- Periodic reassessments
- Review of incident history
- Monitoring of security posture changes
- SLA and performance reviews
- Evidence collection
Ongoing oversight demonstrates that vendor risk is actively managed, not forgotten after onboarding.
Incident Management Involving Third Parties
Third-party incidents are among the most challenging to manage. Enterprises must coordinate with vendors while still meeting regulatory timelines under GDPR and NIS2.
Regulators expect:
- Clear incident notification obligations in contracts
- Defined escalation paths
- Ability to assess impact quickly
- Timely regulator notification where required
Blame-shifting to vendors does not absolve regulatory responsibility.
Supply Chain Concentration and Dependency Risk
NIS2 introduces an additional layer of scrutiny around dependency risk. Heavy reliance on a single vendor, cloud provider, or MSP can create systemic vulnerabilities.
Enterprises are expected to:
- Understand critical dependencies
- Consider redundancy or exit strategies
- Factor concentration risk into risk assessments
This does not require immediate multi-vendor strategies, but it does require awareness and planning.
MSPs and IT Service Providers as High-Risk Vendors
Managed service providers often have privileged access across multiple systems. Under NIS2, MSPs are explicitly recognised as critical components of the cyber risk landscape.
Enterprises must ensure MSPs are:
- Appropriately governed
- Subject to oversight
- Integrated into incident response planning
- Held accountable through measurable controls
MSPs are partners, but they are also risk vectors if unmanaged.
Evidence and Inspection Readiness
Both GDPR and NIS2 place strong emphasis on evidence. During inspections, regulators may ask:
- How vendors are classified
- What oversight exists for critical vendors
- How incidents involving vendors were handled
- Whether risk decisions were documented
Enterprises must maintain records that demonstrate ongoing third-party risk management.
Avoiding Over-Engineering Third-Party Risk
A common challenge is balancing regulatory expectations with operational efficiency. Overly complex vendor risk programmes can slow procurement and frustrate business teams.
Regulators do not expect:
- Identical treatment of all vendors
- Excessive documentation
- Full audits of every supplier
They do expect proportionate, thoughtful governance.
Turning Third-Party Risk into a Strength
Well-managed third-party risk programmes deliver benefits beyond compliance:
- Reduced incident impact
- Faster response during vendor breaches
- Stronger partner relationships
- Increased trust from regulators and customers
Enterprises that demonstrate control over their supply chain are viewed as more resilient.
How Infodot Helps Manage Third-Party Risk Under GDPR and NIS2
Infodot supports EU enterprises by embedding practical third-party risk governance into daily IT and security operations. Rather than offering static assessments, Infodot focuses on continuous execution.
Infodot helps organisations:
- Classify vendors based on real risk
- Implement proportionate due diligence
- Govern MSP and cloud provider access
- Integrate vendors into incident response workflows
- Maintain inspection-ready evidence
- Reduce operational friction
- Align third-party risk with GDPR and NIS2 expectations
This approach ensures compliance without unnecessary complexity.
Conclusion
Third-party risk under GDPR and NIS2 is no longer about paperwork or contract clauses. It is about visibility, accountability, and execution. EU regulators expect enterprises to understand who their critical vendors are, how those vendors affect cyber risk, and what happens when things go wrong.
Enterprises that treat third-party risk as a living governance process, rather than a procurement checkbox, are better positioned to meet regulatory expectations and protect their operations. In a connected digital ecosystem, resilience is only as strong as the weakest link.
Frequent Asked Questions
What is third-party risk under GDPR and NIS2?
It is the risk that vendors, processors, or service providers introduce cybersecurity or data protection failures affecting your organisation’s compliance and operations.
Can accountability be transferred to vendors?
No. Organisations remain accountable for third-party failures, even when incidents originate entirely at the vendor or processor level.
Who is considered a third party under GDPR?
Any external entity that processes personal data or accesses systems containing personal data on behalf of the organisation.
Does NIS2 expand third-party risk expectations?
Yes. NIS2 explicitly includes supply chain and service provider cyber risk as part of organisational responsibility.
Are cloud providers considered third parties?
Yes. Cloud service providers are critical third parties and require active governance, not just contractual agreements.
Is a signed contract enough for compliance?
No. Regulators expect ongoing oversight and assurance that contractual security obligations are actually implemented.
How should vendors be classified for risk?
Vendors should be tiered based on data access, system access, operational criticality, and potential business impact.
Do all vendors require the same level of review?
No. Regulators expect proportionate, risk-based vendor oversight rather than uniform treatment of all suppliers.
What is the most common third-party compliance failure?
Lack of ongoing monitoring after onboarding, leading to unknown security posture changes over time.
How often should vendor risk be reassessed?
Periodically, and whenever material changes occur such as new services, incidents, or changes in vendor operations.
Are sub-processors included in risk scope?
Yes. Organisations must maintain visibility and approval mechanisms for sub-processors used by vendors.
What evidence do regulators request during inspections?
Vendor inventories, risk classifications, due diligence records, incident logs, and documentation of ongoing oversight.
Does NIS2 require vendor incident reporting?
Yes. Enterprises must ensure vendors notify incidents promptly to support regulatory reporting timelines.
How should MSPs be governed?
MSPs require heightened oversight due to privileged access, including monitoring, access control, and integration into incident response.
Is vendor cyber insurance sufficient?
No. Insurance does not replace the obligation to manage third-party cyber risk proactively.
What role does procurement play in third-party risk?
Procurement must integrate cybersecurity requirements and risk assessment into vendor onboarding and renewal processes.
Can questionnaires alone satisfy due diligence?
No. Questionnaires should be supported by evidence, certifications, or monitoring appropriate to vendor risk.
What happens if a vendor refuses security oversight?
This represents a risk decision that must be documented and accepted by management or addressed through alternative vendors.
Are software vendors treated differently from service providers?
No. Any vendor introducing cyber risk must be assessed based on access and impact, regardless of service type.
How does third-party risk affect breach notification?
Controllers remain responsible for assessing and reporting breaches, even if incidents occur at vendor environments.
Does GDPR require audits of vendors?
Audit rights are required contractually, but actual audits should be risk-based and proportionate.
What is supply chain concentration risk?
It is over-reliance on a single vendor, increasing operational and resilience risk if that vendor fails.
Does NIS2 expect redundancy planning?
Yes. For critical services, dependency risk should be understood and addressed through planning or alternatives.
How should third-party access be controlled?
Access should follow least-privilege principles and be reviewed regularly to prevent unnecessary exposure.
Are legacy vendors still subject to review?
Yes. Existing vendors must be reassessed to meet evolving regulatory expectations.
What is the role of senior management in vendor risk?
Leadership must approve risk-based vendor decisions and oversee critical third-party dependencies.
Can third-party risk management be outsourced?
Execution can be supported, but accountability and governance remain with the organisation.
How does NIS2 treat software supply chain risk?
Software integrity and update risks are recognised as part of broader supply chain cybersecurity exposure.
What documentation should be retained?
Vendor risk assessments, contracts, incident records, oversight activities, and decision approvals.
How should vendor incidents be escalated internally?
Clear escalation paths must exist to enable timely regulatory assessment and response.
Is continuous monitoring expected for all vendors?
Only for higher-risk vendors, monitoring depth should align with potential impact.
What happens if vendor controls fail?
Regulators assess whether oversight was reasonable and whether response actions were timely and effective.
Does third-party risk extend to consultants?
Yes. Consultants with system or data access introduce cyber and data protection risk.
How can enterprises avoid over-engineering vendor risk?
By applying tiered, risk-based controls rather than exhaustive reviews for every supplier.
How does Infodot support third-party risk management?
Infodot embeds continuous vendor oversight, MSP governance, and inspection-ready evidence into daily IT and security operations.
